As per its report, the scam was of the magnitude of Rs.4025 crore. The RBI created a committee to investigate the matter. We therefore, proceed on the basis that the Special Court is authorised by law to adjudicate the claim of the second defendant without being shackled by the procedural fetters imposed under the Code. Secondly, PSUs were given permission to transact with foreign banks only in January 1992. 14. Food Information Consumers (FIC) Regulation and FOP. The Janakiraman Committee estimated the size of the scam at Rs 4024 crore. Stringent RBI regulations restricted them from borrowing from banks, the cheapest source of funds. It is a body set up by the Governor of Reserve Bank of India obviously in exercise of its administrative functions. 29. By the judgment under appeal, it is recorded in this regard as follows: Further at para 48 the judgment under appeal records as follows: 47. 40. What was the extent of PSUs’ involvement in the securities market? The Reserve Bank of India formed Janakiraman Committee in 1992 to provide a comprehensive picture of the scam. 2155 of 1999 with Nos. The procedure that is required to be followed in the cases of set-off or counterclaim is detailed under Order 8 of the Code. A … Citation. 5. The first defendant further took a stand that the second defendant discharged the obligation of the plaintiff to Canfina under the said BR by delivering the said IRFC bonds to Canfina11. But that deal did not work out. This was possible because every bank dealing in securities had their favoured set of brokers, for whom they were willing to bypass rules. Apart from the problem of the plaintiff not adducing any evidence, it is rather difficult to understand the process followed by the Special Court to reach the conclusion that the plaintiff is entitled to the decree as prayed for and at the same time not entitled to retain the entire amount but should share a part of it with the second defendant. The cat was finally out of the bag. 32. In the 80s, banks had to park 63.5 percent of their deposits with RBI, in cash or specified securities to comply with the CRR and SLR requirements. Stock Market Highlights: Indices close at record levels; Sensex ends 133 points higher; Nifty above 13,950; auto, metal stocks shine, Asian stocks advance after Trump signs $900 billion aid package, Yearender 2020: A historic oil price collapse, with worries headed into 2021. 41.4 Such discharge was a consequence of the receipt of the IRFC bonds of face value of Rs 100 crores by Canfina. Which counterclaim as already noticed from the written statement of the second defendant (relevant parts already extracted in para 19) is based on the existence of two transactions in securities, that is, (i) the sale and purchase of IRFC bonds between the plaintiff and Canfina (which is not a party to the suit), (ii) between the plaintiff and the first defendant Bank. Following the scam, the Reserve Bank of India had appointed the Janakiraman Committee to probe it. Please log in or sign up for a free trial to access this feature. In the same breath the plaintiff also added “in any case is liable to repay the amount on the basis of moneys had and received without any consideration”. An appeal to this Court, is provided from the judgment, decree, sentence or order of such Special Court. contains alphabet), State Bank Of India Through General Manager v. National Housing Bank And Others. How did stockbrokers come into the picture? In support of such a plea, the second defendant examined a witness. The Special Court framed a large number of issues arising between the plaintiffs and each of the defendants. Brokers and banks got help from public sector undertakings (PSUs), which were looking for avenues to deploy their temporary surpluses. 8. According to the second defendant, both the transactions were routed through him. 6. Though not expressly stated, in the written statement but it was argued that the cumulative effect of all the abovementioned factors is that the second defendant though appropriated the proceeds of the cheque in issue, such an appropriation is supported by consideration i.e he relieved the plaintiff Bank of its obligation to deliver the IRFC bonds which it was obliged to deliver to Canfina. Section 9- A(1)(b) of the Special Court Act, Civil Appeals No. Upcoming Web Series On Harshad Mehta Story As per the Janakiraman Committee Report, the scam was of the magnitude of Rs.4025 crores . Aggrieved by that part of the decree of the Special Court wherein the Special Court directed the plaintiff to deliver certain amounts to the Custodian6, the plaintiff Bank filed Civil Appeal No. Justice A.P. 72. This impact on the stock market was huge considering that the scam amounted to only 4025 crores in comparison to a trillion or 1 lakh crores. National Housing Bank (hereinafter referred to as “the plaintiff”) a statutory corporation created by an Act of Parliament (Act 53 of 1987) filed two suits, one invoking the original jurisdiction of the Bombay High Court (Suit No. 211 of 1995) and another before the Special Court established under Act 27 of 1992 being Suit No. Naturally, they were in a precarious position and faced ruin if share prices rose further. 33. The Committee was called the Janakiraman Committee. Sometimes the large public issues made by the PSUs did not find enough takers. Four foreign banks—Standard Chartered, ANZ Grindlays, Bank of America and Citibank—accounted for 56 percent of all securities transactions by banks between April 1991 and May 1992. 42. When the RBI raised CRR, some banks would find themselves short of cash. The plaintiff preferred Civil Appeal No. This impact on the stock market was huge considering that the scam amounted to only 4025 crores in comparison to a … Andhra Bank had issued BRs without having the underlying securities, and Syndicate Bank had issued an SGL transfer form without having adequate balance in its government securities account. There is absolutely no evidence on record regarding the payment of the abovementioned amount of Rs 55 crores (approx.) By an order dated 17-4-1995, the Special Court directed the plaintiff Bank to elect one of the two fora for pursuing its litigation. Upon such notification, all the properties whether movable or immovable belonging to any person so notified stand attached. 17. On the basis of information gathered it was thought that the said transaction was outstanding and that the first defendant had not delivered the related securities or any BR for the same. They found a loophole in the banking system that was there for everyone to see. As per the Janakiraman Committee Report, the scam was of the magnitude of Rs.4025 crores . The abovementioned Suit No. The Reserve Bank of India constituted the Janakiraman Committee to look into the diversion of funds. Such knowledge on the part of the plaintiffs is obvious from the averments made in the plaint itself. The JPC report said, “ANZ Grindlays, Citibank, American Express Bank, Bank of America and SCB have not only been the major players in the scam but have initiated the entire process of the scam.”. The other key rule was that BRs were valid up to a maximum of 90 days. Prant Address: 20/31 Janakiraman Colony Main Rd., A rumbakkam, Chennai 600106 Our Bank: Indian Bank, The whole exercise appears to be an eyewash. 30. The Janakiraman Committee is not even a statutory body authorised to collect evidence in the legal sense. Vodafone Idea 10.75 0.85. We regret to say that the course adopted by the learned Judge of the Special Court of looking into the correspondence between the parties, which even according to the learned Judge had not been proved is not permissible in law. Thanks to this theory gaining acceptance in the market, the share price of cement major ACC rallied from Rs 300 to Rs 10,000 in less than two years. The scandalous thing about the litigation is that the plaintiffs led no evidence. Subsequently, the plaintiff Bank moved an application to amend the pleadings in Suit No. 65. In fact, it appears from the judgment under appeal that even in this case the Special Court had directed such a settlement without any success. Janakiraman. Hari Gautam Committee: To review the status of UGC: Hilton-Young Commission: Recommended setting up of RBI. The Special Court is invested with jurisdiction both criminal and civil to deal with the offences committed by the notified persons and also with the properties and transactions in securities in which a notified person is involved and any matter or claim arising therefrom. It is pertinent to note that Defendants 1, 2 and 5 pleaded and Defendants 1 and 2 adduced oral evidence to prove that the plaintiff incurred an obligation to deliver IRFC bonds of face value Rs 100 crores on 3-1-1992 to Canfina Ltd. Some banks started issuing BRs, aware that they did not have the underlying securities. Brokers helped banks meet regulatory requirements and also earn profits on their securities transactions. And when they were not financing other traders, the brokers would need funds to roll over their positions, if the market was in an uptrend. For instance, when the RBI hiked interest rates, the value of the bonds held by banks would decline, and this would affect their profits. According to the second defendant under the first of the abovementioned transactions, the plaintiff Bank agreed to sell the IRFC bonds to Canfina and received the agreed price of the bonds without actually delivering the bonds and issued a BR for the amount so received. No attempt appears to have been made by the Government to find out the truth as to (1) how the plaintiff Bank parted with a high denomination cheque and gave custody of the same to Harshad Mehta and (2) as to how the first defendant Bank paid the various amounts to the dictation of Harshad Mehta in the absence of any authorisation by the plaintiff Bank. The entire effort of the plaintiff in the suit, according to us, is to suppress all the relevant information and we are convinced that such a process is resorted to in order to shield the delinquent officers of the Bank (whoever they are) who are responsible for such dealings by taking shelter under the legal principles such as unjust enrichment and moneys had and received, etc. Prant Address: 20/31 Janakiraman Colony Main Rd., A rumbakkam, Chennai 600106 Our Bank: Indian Bank, 10. The brokers would then play the stock market with the funds, earn profits and return the money to the bank. In view of the specific assertion of Defendants 1, 2 and 5 and particularly the second defendant in his written statement that the plaintiff entered into two transactions on 3-1-1992 — one for the purchase and the other for the sale of 9% IRFC bonds and that the first defendant also issued a BR (obviously for the value of the cheque in issue) in favour of the plaintiff Bank and the further assertion of the second defendant that he “arranged for physical delivery of 9% IRFC bonds” to Canfina and instructed Canfina to return the duly discharged BR issued by the plaintiff Bank in order to enable the plaintiff to discharge the BR allegedly issued by the first defendant Bank—in our opinion, a more specific issue—whether there were two transactions as alleged by the second defendant and also whether the first defendant also issued a BR for the value of the cheque in issue as averred by the second defendant, ought to have been framed. The statements made before such commission cannot be used as evidence before any civil or criminal court. SC bench asks about action taken to implement KV Kamath Committee report. One after the other, fictitious deals at various banks started getting exposed. In exercise of such jurisdiction, the Special Court partially accepted the “counterclaim” made by the second defendant. But in the circumstances, we do not award any costs. NSE Gainer-Large Cap . Expert committee on economic capital framework will have to give its report within 90 days from its first meeting. 3. Did RBI take any steps to prevent the misuse of BRs by banks? 41.2 There was a transaction between the plaintiff and Canfina where the plaintiff agreed to sell IRFC bonds of face value Rs 100 crores to Canfina for a consideration of Rs 95.43 crores (approx.). 41.5 The said bonds were delivered to Canfina partly by the second defendant and partly by Standard Chartered Bank. 2 of 1995 is as follows: 13. Indian Economy quiz/questions and answers with explanation for various interview, competitive examination and entrance exam/test preparation. The substance of the correspondence of the first defendant Bank as narrated in the plaint is “the first defendant further stated that the amount of the cheque received by it had been for and on account and for the benefit of the second defendant. 40. Under the Code of Civil Procedure, 1908 (for short “the Code”), such a decree in favour of a defendant is permissible in a case where the defendant either pleads a set-off or makes a counterclaim as contemplated under Order 8 of the Code. The Janakiraman Committee estimated the size of the scam at Rs 4024 crore. of the fiscal deficit in the Budget 1986 speech. It is recorded by the judgment under appeal at para 45: 50. To circumvent the IBA rule, banks devised the ‘ready forward’ mechanism, and so could lend at a rate higher than the call money rate. In addition, brokers also accommodated banks by temporarily taking losses off their books. Mr. Janakiraman is undergoing treatment at a private hospital for age related treatment. Shah Committee: To head panel on road safety: K M Chandrasekhar Committee: For rationalization of foreign investment norms: K U.B. 206/2019 page 19 of 24 could not have been used as evidence by the Special Court. The committee submitted the fifth and final report on May 7, 1993. The Reserve Bank of India formed Janakiraman Committee in 1992 to provide a comprehensive picture of the scam. 49. The Janakiraman Committee notes that the plaintiffs banker's receipt stood discharged by Canfina on 31-3-1992 by taking physical delivery of the bonds from Defendant 2 (herein). Be that as it may, if really the Government believed that the judgment of the Special Court does not require any interference, nothing stopped the Government from directing both the Banks to withdraw their appeals before this Court. 2294 of 1999 to this Court. Here's a detailed FAQ that takes an in-depth look at the Securities Scam 1992. The mandate of the cfsr has been to "outline a comprehensive agenda for the evolution of the financial sector". What is the link between securities trades and compliance with CRR and SLR requirements? The report of such a committee in our view can at best be the opinion of the Committee based on its own examination of the records of the various banks (including the plaintiff and the first defendant) and the statements recorded (by the Committee) of the various persons examined by the Committee. The Janakiraman Committee in March 1993 brought out the 4th Interim Report. Many banks flouted the RBI guidelines on bill discounting, and advanced funds to corporates and NBFCs even though the bills were not genuine or did not conform to RBI rules. 55. He made a categorical statement in his chief-examination as follows: There is no cross-examination on behalf of the plaintiff in this regard. The cases linked on your profile facilitate Casemine's artificial intelligence engine in recommending you to potential clients who might be interested in availing your services for similar matters. It embraces among others foreign banks, financial and other public/private sector corporations, the principal stock exchanges, select brokers, and persons occupying high offices. What was the reason for banks’ profits being low? On the other hand, the Special Court recorded20 with respect to the payment of Rs 55 crores (approx.) As the government gradually withdrew budgetary support, PSUs started raising huge sums from the bond markets even when they did not have any capital expenditure plans. After a few days, Bank A would buy the securities back from Bank B at a slightly higher rate. The concurrence of the Chief Justice of India is required to be obtained for such nomination of a sitting Judge of the High Court. The corporates often use the funds to buy shares of group companies. These holes remained undetected for long because the portfolio was supported by SGL transfer forms or BRs which were either on hand or would be delivered by brokers. The first defendant Bank denied the existence of any “outstanding transaction” between the two and its liability to issue either a BR or deliver any securities or refund of the amount as claimed by the plaintiff Bank. It was a classic ‘you-scratch-my-back-I-scratch-yours’ arrangement between banks and brokers. MUMBAI: Venkataraman Janakiraman, independent director of IL&FS Securities Services Ltd. (), resigned last Friday for personal reasons at a time when scrutiny of the roles of the compliance team and independent directors has intensified. The witness of the second defendant clearly spoke to the fact that there were two transactions in securities i.e the sale and purchase of IRFC bonds of face value Rs 100 crores (as alleged by the second defendant) on 3-1-1992, whose evidence remains undisturbed as there was no cross-examination on this aspect by the plaintiff. How was this sum arrived at? The said receipt was subsequently returned discharged by Canfina on receipt of the abovementioned IRFC bonds. But buyers had the option to roll over their position to the next settlement cycle, if they could find somebody to finance it. They exploited it to the hilt. That left banks—both public sector and private sector--with little funds for commercial lending. This Court directed that both the suits be placed before the learned Judge who had been nominated to be the Judge presiding over the Special Court (the Hon'ble Justice Variava of the Bombay High Court, as His Lordship then was) for disposal in accordance with law. 16. Adjusted for inflation, this amount stands at over Rs 24,000 crore today. 70. Even when PSUs were able to raise money without help from banks, they needed to generate enough returns to be able to pay interest to the bondholders. In Spite of the recommendations made by the Janakiraman Committee Report in 1992 to prevent security scams from happening in the future another security market took place in 2001. The Janakiraman Committee Report indicates that Standard Chartered Bank has given credit of the proceeds of this cheque to one Growmore Research and Asset Management Company Limited. What the Janakiraman Committee did mention however, was the RBI circular dated July 26, 1991, to most of the banks, alerting them about underhand dealings in securities and the free-use of BRs. The further case of the second defendant is that he got delivered the IRFC bonds to the satisfaction of Canfina and on receipt of such bonds Canfina returned the discharged BR of the plaintiff Bank. CBI, BS&FC, Mumbai Branch registered 17 cases, out of which 15 were hargesheeted. The frame of Suit No. Around 40 percent of the remaining deposits was earmarked for priority sector lending. 12. The professed purpose of the Special Courts Act, the backdrop of the scandal that shook the nation, and the manner in which the litigation was conducted coupled with the absolute indifference of the Government to get at the truth only demonstrates the duplicity with which Governments can act. Bank of Karad and Metropolitan Co-operative Bank, which had issued BRs and SGL forms without any underlying securities, suffered massive losses and went under. The Janakiraman Committee estimated the size of the scam at Rs 4024 crore. 51. It is the case of the second defendant that the said bonds were delivered to Canfina by him and secured the discharge of BR given by the plaintiff to Canfina. What exactly is the replacement cost theory, and Harshad’s version of it? Under Section 3(2)2 of the said Act, the Custodian appointed by the Government of India, if satisfied that any person was involved in “any offence relating to transactions in securities” during the period falling between 1-4-1991 to 6-6-1992 is empowered to notify the name of such person in the Official Gazette. Under pressure from the broking community, SEBI diluted the hike on April 20. Committee on Customer Service in Banks. Lodha Committee the one which is probably on the hate list of all Indian cricket fans.. All rights reserved. 2. The content of Para 8 of the written statement of the first defendant has already been taken note of wherein the first defendant admits receipt of the cheque in question through the second defendant. Trading finally resumed on April 27, but by then it was too late for Harshad. He also spoke to the existence of two transactions and the issue of a BR by the plaintiff to Canfina as pleaded by the second defendant. However, Issues 4 to 6 between the plaintiff and the first defendant and Issues 6 and 7 between the plaintiff and the second defendant imply (though inelegantly) that there was a sale transaction of the IRFC bonds of face value of Rs 100 crores between the plaintiff which the first defendant Bank routed through the second defendant. What was the event that finally blew the lid off the scam? 2 of 1995. Coronavirus News Highlights: Punjab to lift night curfew from... Banks buying securities would not insist on delivery within the 90-day limit, and this led to BRs being valid indefinitely. 54. It can be seen from the judgment under appeal that some of the issues were not pressed even before the Special Court. The first defendant also in his written statement categorically pleaded that there was a security transaction between the plaintiff and Canfina on 3-1-1992 (as alleged by the second defendant in his written statement) and in that context, the plaintiff issued a BR in favour of Canfina. What was the tussle between Harshad and the bear cartel? Once the buyer got delivery of the securities, the BR would no longer be valid. In our considered view the report of the Janakiraman Committee is not evidence within the meaning of Evidence Act which the Special Court is bound to follow." The only other witness examined in this case before Special Court is one Hiten B. Mehta who claimed that he was working at the relevant point of time (1992) with the second defendant as a Chief dealer. Corporate Governance Report ... /Committee Membership(s) held by Directors in companies other than Mindtree, along with age of the Director, date of appointment to the Board of Mindtree and Director Identification Number (DIN) are ... Mr. S.Janakiraman Executive Director, President & CTO 875,137 Six years before the scam came to light, an RBI inspection report of October 1986 found Andhra Bank and Syndicate Bank guilty of misusing BRs. In case of any confusion, feel free to reach out to us.Leave your message here. Although the matter caused "great Consequently, a preliminary question regarding the forum which had jurisdiction to adjudicate the dispute which is the subject-matter of the two suits came to be considered by the Hon'ble Justice Variava. According to him, the entire transaction in question occurred in the following manner: 20. However, vague references continued even in the amended plaint to a transaction pertaining to the sale of 9% IRFC bonds. In the written statement, the second defendant does not dispute the assertion of the plaintiff Bank, that the second defendant “got possession” of the cheque which is the subject-matter of dispute in the suit. 3. The Janakiraman Committee report on the scam estimated a loss of Rs.3,128 crore to the public — huge compared to the Bofors scam of Rs. 40. … The Custodian is required to deal with such attached properties in such manner as the Special Court may direct. DMK leader and Member of Parliament K. Kanimozhi called on ailing former Chief Minister R.V. ... Swaminathan Janakiraman and Ashwini Kumar Tewari recommended for posts of MD at SBI. 36. So brokers found it profitable to access funds from the banking system and use it for their stock market operations. Janakiraman Committee : To investigate the security transactions of the bank JS Mathur committee : To revise Newspaper Advertisement Rates. Was there any other dimension as well to the Securities Scam? Long correspondence ensued between the plaintiff and the first defendant Bank. Janakiraman said the exercise is a wonderful endeavor for classes in that it gives students something tangible to take to future employers. A bank holding a BR and yet to receive delivery of the underlying securities would trade in those securities with a third bank, and issue another BR. 45. This is one of the group companies run by the 2nd Defendant. Among the main ones, BRs could not be issued for government securities, they could only be issued when PSU bonds or mutual fund units were traded. Bank receipts are said to be at the heart of the scam? 5. Corporate Governance Report ... /Committee Membership(s) held by Directors in companies other than Mindtree, along with age of the Director, date of appointment to the Board of Mindtree and Director Identification Number (DIN) are ... Mr. S.Janakiraman Executive Director, President & CTO 875,137 By a Letter dated 11-6-2010, signed by one Raman Kumar Gaur, Under-Secretary to the Government of India, Ministry of Finance, Department of Financial Services, addressed to the Registrar of this Court, it was informed as under: A reading of the letter demonstrates utter callousness on the part of the Government in dealing with the matter. 19. Could Harshad have resolved the problem with SBI, without the RBI pinning him down? We may also note that such a stand is not taken by the defendants for the first time in the written statement. We are of the opinion that the plaintiff approached the Special Court with unclean hands by suppressing the relevant material. We have already noticed that the decree under appeal is in two parts. As per the Janakiraman Committee Report, the scam was of the magnitude of Rs.4025 crores . He was the favoured broker of State Bank of India and its subsidiaries, National Housing Bank, UCO Bank and ANZ Grindlays. For example, if it took Rs 500 crore to build a new cement or steel plant of a certain capacity, then an existing company with that capacity should be valued at Rs 500 crore. The Special Court based its conclusions on Janakiraman Committee Report and the correspondence between the various parties (whose details are not even specified in the judgment). Corporate Governance Report Company's Philosophy on Corporate Governance Mindtree Limited (herein after referred to as 'Mindtree' or 'the Company'),looks upon good Corporate Governance practices as a key driver of sustainable corporate growth and long-term stakeholder value creation. 60. In Harshad’s view, a manufacturing company’s stock market value should be equal to the investment required to set up a similar capacity. Neither of the banks explained the genesis of such practice. During the pendency of the said appeal, Suit No. *T&C apply. Good Corporate Governance Practices enable a Company to attract high quality financial and human capital. Aggrieved by the same, the first defendant Bank carried Civil Appeal No. How was this sum arrived at? as the same was paid to Standard Chartered Bank towards the price of IRFC bonds of face value Rs 80 crores which eventually came to be delivered to Canfina by Standard Chartered Bank on behalf of the plaintiff Bank. Note, the coupon rate or yield on the securities had no connection to the trade, which was a pure financing deal. From the judgment under appeal, it is obvious that the Special Court accepted the defence of the second defendant at least to the extent of (1) the existence of an obligation on the part of the plaintiff to deliver IRFC bonds of face value Rs 100 crores, (2) the factum of delivery of the said bonds to Canfina and (3) the return of the duly discharged BR by Canfina. The Special Court rejected the preliminary objection by its order dated 22-11-1999. So the seller bank would issue a ‘bank receipt’ (BR) to the buyer of the securities, till such time the shares were physically handed over. There was a close nexus between some banks and some brokers, which allowed the brokers to have unauthorized access to banks’ funds, as well as put through transactions not always authorized by the banks. This impact on the stock market was huge considering that the scam amounted to only 4025 crores in comparison to a trillion or 1 lakh crores. View Ankita Janakiraman’s profile on LinkedIn, the world’s largest professional community. The first part of the decree is in favour of the plaintiff and the second part virtually in favour of the second defendant, though, the ultimate direction in this regard is that the plaintiff should pay certain amounts to the fifth defendant who is the statutory custodian of the second defendant's property under the Special Court Act. A conclusion which in our opinion is wrong and the consequences of suppression of material facts require a further scrutiny at a later stage of this judgment. It is equally irresponsible on the part of the first defendant to have acted on the instructions of the second defendant without there being any legal authority in writing on the part of the second defendant to issue instructions regarding the disbursement of the proceeds of the cheque in question. Bimal Jalan Committee: Report on the functioning of Capital Market Infrastructure Institutions (MII) 8. 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